Failed To Pay Your Personal Loan EMI? Here’s What You Need To Do


We’re going to look at what you can do if you fail to pay your personal loan EMI. However, for those who are unfamiliar with personal loans, what they are, and why they are the way they are, let’s introduce them first.

What Is a Personal Loan?

A personal loan is an unsecured loan. What this means is that there is no “backup plan” for the lender in the form of an asset that it can recover. A secured loan is a loan that has something of value as collateral against the applicant defaulting. Examples of secured loans are home, car, or gold loans. The risk for the lender is higher with unsecured loans, which is why personal loan interest rates differ from secured loans.

What Happens if You Default on a Personal Loan?

Lenders usually offer a grace period after the original due date—if you make your EMI payment during this period, you will merely have to pay a late fee. The grace period and late fee for personal loan EMIs will differ from lender to lender, so make sure you know what they are as early as possible. If you miss just one EMI, the lender will not report you as a defaulter; however, if you miss at least a few EMIs, your lender will report you as a defaulter to CIBIL, the authority that tracks an individual’s credit history and gives a score that reflects the individual’s creditworthiness. This will lead to you getting a low credit score. You can open up a dialogue with your personal loan lender to try and negotiate a new payment plan that will allow you to repay the loan, and the lender to recover their investment. If this can be done before you’re reported as a major defaulter, it will be beneficial to both parties.

What You Can Do to Avoid Defaulting on a Personal Loan?

Make sure you can pay the personal loan EMIs consistently. A good rule of thumb is to never go for an EMI that is more than half of your take-home salary. The lower the percentage it occupies of your salary, the less likely you are to default on it. If you’re unsure about how much an EMI will work out, you can use tools like a personal loan EMI calculator that are available on lender websites to help you make your decision more easily.

That said, the pandemic has shown us that we can never predict our financial situation with 100% accuracy. So, if you realize that you cannot make an EMI payment, you can always talk to your lender and let them know of your difficulty and work out a solution to ensure that you do not get reported as a defaulter. The solution can be one of several things: an extra, catch-up EMI somewhere down the line with a late fee, just a late fee and adding an extra month to the loan tenure, or a full-blown renegotiation of the loan with reworked EMIs, all are possible.

The important takeaway is that if you miss more than a couple of EMIs on your personal loan, your lender will report you to CIBIL as a defaulter, which will then give you a low credit score. A low credit score will simply make it more difficult for you to obtain a loan in the future—you will get high interest rates, lower loan amounts, and shorter tenures until you rebuild your credit score to the level that marks you as a low-risk individual. If your loan has guarantors, they become liable to repay your loan amount. Obtaining a personal loan online is a smooth, hassle-free affair; hence, there is no reason why a single missed payment should be more trouble than that!

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